Chapter Seven: Controls on Mortgage of Securities

Banks must adhere to the following controls regarding mortgage of securities procedures, in addition to protecting the rights of banks and counterparties, preventing manipulation in this field, which ultimately contributes to the stability of transactions in the securities market and the preservation of the rights of banks and counterparties.

First: Principles and Important Notes

1. It is preferable that the mortgage not be registered on Egyptian Depository Company (EDC) securities before the pledge, to ensure the ownership of the mortgagor or guarantor of the securities offered as collateral.

2. A statement of account issued by the Egyptian Depository Company or an authorized custodian is considered proof of the client's ownership of the securities mentioned in the statement as of the date of its issuance.

3. The securities certificates offered to the bank for mortgage must be owned by the mortgagor or guarantor (whether registered in their name or with a transfer statement attached from the Exchange or from the Egyptian Depository Company), with the exception of the Egyptian Depository Company notifying the cessation of trading on them (e.g., because they are delisted from the Exchange). This exception includes all details of the pledged securities, including serial numbers and denominations. Settlement of any transactions on the pledged securities certificates or on other certificates with the same serial numbers and denominations is prohibited.

4. If the Egyptian Depository Company sells securities certificates listed on the Exchange for the benefit of any secured creditor, their obligation is limited to delivering the pledged certificates only to the secured creditor or their legal representative, or to the mortgagor upon the expiration of the mortgage for reasons stipulated by law.

5. The mortgage of registered securities (centrally held) must be notified in the registers of the Ministry of Justice (Article 120 of Commercial Law No. 17 of 1999).

6. A mortgage contract must be concluded between the secured creditor and the mortgagor, signed by both parties, containing all details of the mortgage transaction, specifically:

   1. Issued by the Supervision and Oversight Sector on July 15, 2004.

   1. Type and quantity of the pledged securities.

   2. The nature of the debt secured by the mortgage and the amounts due, including interest, fees, and expenses.

   3. The date of contract commencement and the date by which the debt secured by the mortgage is due, taking into account extensions granted in the form of current account credits, which are renewed annually.

   4. Details of the powers granted to both the secured creditor and the mortgagor regarding the pledged securities and the proceeds derived from them, such as dividends, bonus shares, and any cash distributions related to the pledged securities (Article 105 of the Central Bank, Banking, and Currency Law issued by Law No. 88 of 2003).

   5. A clause in the contract stating whether the bank, as a secured creditor, has the right to sell the pledged securities if the mortgagor fails to pay the bank's secured dues by the deadline.

7. If the mortgagor offers additional securities as additional collateral, the same rules applied to the original securities offered as collateral apply.

8. If securities are offered for mortgage as original or additional collateral by a guarantor or surety for the primary mortgagor, the guarantor or surety must provide a declaration confirming the pledge of these securities in accordance with the requirements stipulated in the primary mortgagor's declaration.

9. No mortgage can be registered on any additional securities owned by the mortgagor and not included in the mortgage contract or the mortgagor's declaration mentioned above, except through new documents and procedures.

10. The request submitted by the secured creditor to release the mortgage on the securities is considered a declaration by them that the mortgagor has paid the debt secured by the mortgage and its dues, unless the request includes another reason for releasing the mortgage.

11. If the bank, as a secured creditor, releases the mortgage on the pledged securities after the client has fulfilled their obligations to the bank before the sale, the bank is not permitted to sell those securities unless there is a specific authorization stipulating Article 105 of the Central Bank and Banking Law.

12. Only banks, as secured creditors, are entitled to sell the pledged securities in accordance with the provisions of Article 105 of the Central Bank, Banking, and Currency Law issued by Law No. 88 of 2003. Other creditors must follow the provisions of Article 126 of Commercial Law No. 17 of 1999.

13. Both the secured creditor and the mortgagor are entitled to obtain any statements or certificates related to the pledged securities from the Egyptian Depository Company, as it is the central registry authorized to register and cancel the mortgage on the securities centrally, or those issued for the benefit of the secured creditor.

14. In accordance with the General Instructions for the Financial Market, the Egyptian Depository Company (as an authorized entity) registers the mortgage of securities certificates (centrally held for secured creditors) and is obligated to allow the settlement of any sale transactions on securities with the same serial numbers as the pledged securities, whether they are listed on the Exchange.

15. The mortgage on pledged securities cannot be released or authorized for sale except based on documents submitted by the branch of the secured creditor bank where the mortgage was registered upon its instructions.

16. In cases of company mergers, capital reduction or increase, or restructuring, the Egyptian Depository Company will register the mortgage on the mortgagor's resulting ownership from the merger or restructuring and will contact the secured creditor regarding the procedure taken in this regard.

17. Requests for registering and releasing the mortgage and selling the pledged securities must be drafted in clear, unambiguous terms to ensure the swift and smooth execution of the required procedure.

Second: Procedures for Registering Mortgage on Securities Centrally Deposited with the Egyptian Depository Company

The secured creditor bank submits the following documents:

1. A request to register the mortgage on the form designated by the Egyptian Depository Company. The request must include a clear statement of the quantity and type of securities to be mortgaged, the name of the mortgagor, the account number, and the custodian responsible for accounting for the securities, as per the details in the request form.

2. A statement of account issued by the custodian responsible for accounting for the securities to be mortgaged.

3. A copy of the mortgage contract.

4. The mortgagor's consent to the mortgage.

5. A statement signed by the secured creditor and the mortgagor detailing the powers granted to the secured creditor over the pledged securities, their proceeds, and the proceeds derived from them.

Note 1: It is sufficient to submit the mortgage contract if it clearly states the documents and their responsibilities.

Note 2: All submitted documents must be stamped with the seal of the secured creditor bank, and the bank is liable for them.

Note 3: Any documents submitted by the bank and attributed to the mortgagor must be accepted upon the mortgagor's signature with the bank's authorized signature seal. If the mortgage is conducted by an agent or legal representative of the mortgagor, the power of attorney or legal representation authorizing the mortgage or concluding the transaction must be submitted.

Third: Cases of Releasing the Mortgage

According to Article 42 of the Executive Regulations of Law No. 93 of 2000, the mortgage is released upon the request of the secured creditor or upon the expiration of the mortgage for reasons stipulated by law.

Documents Required for Releasing the Mortgage:

1. For Centrally Held Securities: A request from the mortgagor to release the mortgage on the pledged securities, submitted by the secured creditor bank, including:

   • The mortgagor's name.
   • The account number.
   • The quantity and type of securities for which the mortgage is to be released.
   • The custodian responsible for accounting for the pledged securities.

2. For Bearer Securities Not Registered with the Central Registry: A request from the mortgagor to release the mortgage on the pledged securities (bearer), submitted by the secured creditor bank, including:

   • The type of securities.
   • The serial numbers, denominations, and indicators of the shares.

Fourth: Sale of Pledged Securities

In the event that the mortgagor fails to pay the debt secured by the mortgage or the installments upon their maturity, the bank, as a secured creditor, may follow one of the following two paths to sell the pledged securities:

1. Sale in accordance with the provisions of Article 126 of Commercial Law No. 17 of 1999: This path is taken if the conditions required for selling the pledged securities under Article 105 of the Central Bank, Banking, and Currency Law issued by Law No. 88 of 2003 are not met. The secured creditor bank submits the following documents:

   a) An order on a petition from a judge of the Summary Court in the competent court to sell the pledged securities, specifying the type and quantity of the securities to be sold.

   b) Proof of notifying the mortgagor and the guarantor or surety, if any, five days before the execution of the judge's order for sale, indicating the place, date, and time of the sale (the sale is conducted at the Exchange if the pledged securities are listed there).

   c) The Egyptian Depository Company creates an account at the Exchange (client/bank) in the bank's name for the pledged securities.

   d) The pledged securities are sold by the brokerage company named in the judge's order for sale, or by other brokerage companies if the judge does not specify one. The brokerage company is obligated to deliver the sales slip to the secured creditor to settle the mortgagor's account.

2. Sale in accordance with the provisions of Article 105 of the Central Bank, Banking, and Currency Law issued by Law No. 88 of 2003: The bank, as secured creditor, submits the following documents:

   a) Proof of an agreement between the bank, as secured creditor, and the mortgagor, granting the bank the right to sell the pledged securities in the event that the mortgagor fails to pay the bank's secured dues by the deadline.

   b) A letter from the bank requesting the sale of the pledged securities, in accordance with the form designated by the Egyptian Depository Company, due to the mortgagor's failure to pay the secured debt upon maturity.

   c) Proof of instructing the mortgagor to pay the debt secured by the mortgage with a document from the creditors, ten days before the date of sale.

   d) A copy of the mortgage contract, if the mortgage registration preceded the notification of the rules and procedures mentioned.

   e) The Egyptian Depository Company creates an account (client/bank) at the Exchange and authorizes the sale of the pledged securities in this account.

   f) The pledged securities are sold by the brokerage company chosen by the bank, as secured creditor, and the bank is obligated to deliver the sales slip to settle the mortgagor's account.

Fifth: Documents Required to Transfer Pledged Securities from One Custodian to Another

1. A request signed by the mortgagor consenting to the transfer of the pledged securities to another custodian. If the request is not submitted by the mortgagor personally or their legal representative, the signature on the request must be accepted with the bank's authorized signature seal from the secured creditor bank.

2. A document confirming the secured creditor bank's consent to the transfer of the pledged securities to the custodian chosen by the mortgagor.

Note: Each of the documents in items 1 and 2 must include the following data:

• Name of the owner of the securities.
• Type and quantity of the securities to be transferred.
• Name of both the transferring custodian and the receiving custodian.
• A statement of account issued in the name of the mortgagor.

3. Consent from the receiving custodian to the transfer process.

Sixth: Documents Required to Transfer Pledged Securities to Another Secured Creditor Bank

1. A request from the mortgagor to transfer the pledged securities to another secured creditor, with the signature accepted by the mortgagor personally with the bank's authorized signature seal. If the request is not submitted by the mortgagor or their legal representative, the signature on the request must be accepted with the authorized signature seal from the secured creditor bank.

2. Consent from the secured creditor bank to the transfer of the pledged securities to another secured creditor.

Note: Each of the documents in items 1 and 2 must include the following data:

• Name of the owner of the security.
• Type and quantity of the securities to be transferred.
• Name of both the custodian and the new secured creditor.
• A statement of account issued in the name of the mortgagor.

3. Consent from the new secured creditor bank to the transfer of the pledged securities for its benefit.